Note 3 - Fair Value Measurement

6 Months Ended

Jun. 30, 2017

(

)

Fair Value Measurement

The fair value of financial instruments reflects the amounts that the Company estimates to receive in connection with the sale of an asset or paid in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The Company follows a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following

three

levels:

Level

– quoted prices in active markets for identical assets and liabilities

Level

– observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are

not

active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level

– unobservable inputs that are supported by little or

market activity and that are significant to the fair value of the assets or liabilities.

The Company’s money market instruments are classified as Level

because they are valued using observable inputs other than quoted market prices. The Company’s marketable securities consist of available-for-sale securities and are classified as Level

because their value is based on valuation using significant inputs derived from or corroborated by observable market data.

The following table sets forth the fair value of our financial assets measured on a recurring basis as of

June 30, 2017

and indicates the fair value hierarchy utilized to determine such fair value (in thousands).

	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	3,901	$	—	$	—	$	3,901
Money market instruments		—		8,711		—		8,711
US government securities		—		649		—		649
US government agency securities		—		1,848		—		1,848
Total cash and cash equivalents	$	3,901	$	11,208	$	—	$	15,109

Marketable securities:
US government securities		—		1,796		—		1,796
Total marketable securities	$	—	$	1,796	$	—	$	1,796

The following table sets forth the fair value of our financial assets measured on a recurring basis as of

December 31, 2016

and indicates the fair value hierarchy utilized to determine such fair value (in thousands).

	Level 1		Level 2		Level 3		Total
Assets:
Cash	$	21,352	$	—	$	—	$	21,352

As discussed in Note

2015,

the Company issued warrants to purchase preferred stock in connection with the note agreements to various shareholders as described below. The warrant liabilities were recorded at the fair value on the date of issuance and were remeasured each subsequent balance sheet date and as of the warrant exercise date, with fair value changes recognized as income (decrease in fair value) or expense (increase in fair value) in other income (expense) in the consolidated statements of operations.

warrants are outstanding as of

June 30, 2017.

May 2015,

the Company entered into note agreements with various stockholders of the Company and other lenders for a total of

$7.2

million, or the

2015

Notes. As discussed more fully in Note

the

2015

Notes include embedded derivative features that were determined to be a compound embedded derivative requiring bifurcation and separate accounting at estimated fair value. The Company estimated the fair value of the compound embedded derivative utilizing a Monte Carlo simulation model from inception through

June 30, 2016.

The inputs used to determine the estimated fair value of the compound embedded derivative instrument include the probability of an underlying event triggering the redemption event and its timing prior to the maturity date of the

2015

Notes. The fair value measurement is based upon significant inputs

not

observable in the market. These assumptions are inherently subjective and involve significant management judgment. Upon the completion of the Merger, the valuation of the compound embedded derivative was determined based on the settlement value of the common stock exchanged for the notes on

October 24, 2016.

notes are outstanding as of

June 30, 2017.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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